By Rupin Chopra and Apalka Bareja
In the ever-changing capital market and abundance in securities, there are numerous characteristics creating an impact on the security market in India. Security Exchange Board of India (SEBI) through its circular[1] dated March 20, 2024 released guidelines to safeguard the investors at the time of dematerialization of Securities. The provisions of the circular came into effect on April 1, 2024. The circular addresses the concerns of the investors on transfer of securities in dematerialized mode. Further, these safeguard lays down a classification of inactive/dormant accounts across stock exchanges and depositories and to prevent frauds and misappropriation of inoperative Demat accounts.
Key highlights of the SEBI Circular to address the concerns of the investors on transfer of securities in dematerialized mode-
- Extra attention to Investor Education: SEBI emphasize that the depositories must pay more attention to investor education, precisely about the careful preservation of Delivery Instruction Slip (DIS) by the Beneficial Owner. The depositories may recommend the Business Owners not to leave ‘blank or signed’ DIS with the depository participants (DPs) or any other person or entity.
- Limitation on issuance of Delivery Instruction Slip (DIS): SEBI has mandated that new DIS shall only be issued when the old allotted DIS expires or get lost.
- Refusal of DIS with Blank left columns: SEBI has ordered to restrain the depository participants (DPs) from accepting pre-signed Delivery Instruction Slip with blank left columns by the Beneficial Owners.
- Maximum 10 loose DIS in one financial year: The depositories must ensure that they do not issue more than 10 loose DISs to individual account holders in a financial year (April to March). The loose DIS should only be issued when the beneficial owner comes in person to collect and sign the loose DIS in the presence of an authorized official.
- Verification of share transfer required by the share owner for Inactive Demat Accounts: SEBI has stated that share transfer from inactive demat accounts shall only take place when verified by the share owner.
- Inactive/Dormant Accounts: SEBI states that any account where no transaction has taken place from last 12 months will be considered as inactive/dormant account.
- Intimation to the Depository Participant: The regulation states that in case a DIS booklet is lost or stolen or not traceable by the beneficial owner, then the same must be intimated to the depository participant at the earliest by the beneficial owner in writing. On receipt of such information, the depository participant shall cancel the unused DIS of the said booklet.
Conclusion
The SEBI initiative is worth appreciating for its ability to protect Investors. The circular shall help to safeguard the interest of investors and to prevent frauds and misappropriation of inoperative Demat accounts. Fraudsters can take advantage of this lack of awareness and use the dormant Demat accounts to transfer shares without the account holder’s knowledge. With SEBI releasing the guidelines for the transfer and dematerialization of securities, the concerns and protection of investors have been addressed to a certain extent.
Aishwarya, Intern at S.S. Rana & Co. has assisted in the research of this Article.
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